U.S. markets opened at their session lows and spent the rest of the session trying to recover before finishing mixed. This week’s action winds up with a number of high profile earnings coming after today’s close and ahead of tomorrow’s opening bell.
The Dow added 0.1% after trading a low of 26,014 while holding the 26,000 level for the 12th-straight session.
The S&P 500 slipped 0.1% after testing a low of 2,813 but was able to hold the 2,800 level for the 10th-straight session and 11-of-the-past-12.
The Nasdaq fell 0.4% after falling to a low of 7,362 late in the session while closing below the 7,400 level for the first time in 9 trading days. The Russell 2000 was up 0.3% after trading down to 1,563 and setting a lower low for the week. The January 11th low of 1,560 is a crucial area of support going forward.
Energy and Financials rose 1% while Technology was up 0.9% to lead sector strength. Real Estate and Utilities were slammed for 1.8% and 1.6% while Materials sank 1.4% to pace sector laggards.
With nearly 40% of the S&P 500 members having reported Q4 earning, the results are higher by 13.3% from the same period last year on 8.2% higher revenues. Over 82% of the companies have topped EPS estimates and 80% have beat revenue estimates.
For total Q4, earnings for the S&P 500 index are expected to be up 11.9% from year ago levels on 7.6% higher revenues.
As far as sectors, Q4 earnings growth for the Energy is the highest of all sectors, with total earnings expected to be soar 185.1% from the same period last year on 25.2% higher revenues. Excluding the Energy sector, total Q4 earnings for the rest of the S&P 500 index would be up 9.2%.
Earnings growth for Technilogy is expected to be strong, with total Q4 earnings forecasted to be higher by 17.4% on 9.5% higher revenues. Finance sector earnings are expected to be up 5.4% on 2.6% year-over-year growth in revenues.
For the small-cap S&P 600 index, nearly 20% of the companies have announced numbers, with earnings up 6.1% on 10.7% higher revenues. The number of companies with both positive EPS and revenue surprises are near 65%, respectively.
For full-year 2017, total earnings for the S&P 500 index are expected to be higher by 7.5% on 4.8% higher revenues, and would follow earnings growth of 0.7% on 2.6% higher revenues in 2016. Index earnings are expected to be up 17.9% in 2018 and 9.5% in 2019.
Global Economy – European markets were lower across the board following weaker-than-expected economic data. Germany’s DAX 30 sank 1.4% after the country’s bund yield rose to a new 2-year high of 0.734%.
UK’s FTSE 100 fell 0.6% while France’s CAC 40 and the Stoxx Europe 600 gave back 0.5%. The Belgium20 dipped 0.2%.
The UK January Markit manufacturing PMI dropped 0.9 to 55.2, weaker than expectations for a gain of 0.2.
UK January nationwide house prices rose 0.6% month-over-month and 3.2% year-over-year, stronger than expectations of for a rise of 0.1% and 2.5%, respectively.
Asian markets were mixed with Japan’s Nikkei rebounding after surging 1.7% to snap a 6-session slide. Australia’s S&P/ASX 200 jumped 0.9% and South Korea’s Kospi was up 0.1%. China’s Shanghai fell 0.9% and Hong Kong’s Hang Seng dropped 0.8%.
The China January Caixin flash manufacturing PMI was unchanged at 51.5, matching expectations.
Japan vehicle sales fell 5.7% year-over-year, the 4th-straight monthly decline.
Challenge Job-Cut reported layoffs climbed 12,200 in January to 44,700 with the annual pace of planned job cuts posting a 2.8% year-over-year decline.
Initial Jobless Claims slipped 1,000 to 230,000 in the week ending January 27th and below forecasts for a print of 235,000. The 4-week moving average fell to 234,500 from 239,500. Continuing claims increased 13,000 to 1,953,000.
January PMI Manufacturing Index climbed 0.4 points to 55.5, matching expectations.
ISM Manufacturing Index eased 0.2 points to 59.1 in January after the 1.1 point increase to 59.3 in December but topped expectations for a print of 58.6. It’s right on the 6-month average and was 55.6 a year ago.
Productivity rose 1.2% in Q4 with unit labor costs increasing 0.3%.
Construction Spending rose 0.7% in December, topping expectations for a 0.5% gain. Residential spending was up 0.4% and Nonresidential spending was up 1.1%.
Private construction spending increased 0.8% while Public spending rose 0.3%. Spending has risen for the last five months and is up 2.6% year-over-year.
Market Sentiment – Atlanta Fed’s Q4 GDPNow estimate was boosted to 5.4% from 4.2% following today’s economic news. The forecast of real consumer spending growth increased from 3.1% to 4%.
Fed rhetoric heats back up on Friday with Dallas Fed Kaplan and San Francisco Fed Williams scheduled to speak.
The iShares 20+ Year Treasury Bond ETF (TLT) tumbled 1.4% after trading to a low of $120.62 into the closing bell. May support at $120.50-$120 held with a close below the latter being a continued bearish development.
Lowered resistance is at $121-$121.50.
Market Analysis – The Russell 3000 Index ($RUA) tested a low of 1,659 with mid-January support at 1,660-1,650 holding. These levels will be crucial in holding going forward with risk to 1,640-1,620 on a close below the latter.
Resistance is at 1,670-1,675 with continued closes back above 1,680 signaling a possible short-term bottom.
RSI has leveled off and is trying to hold December support at 60 with a move below this level being a warning sign for lower lows. Resistance is at 70.
The Spiders S&P Homebuilders ETF (XHB) fell for the 4th-straight session and 7-of-the-past-8 after testing a low of $44.32. Support is at $44.25-$44 if the 50-day moving average fails to hold with a close below the latter signaling additional weakness.
Lowered resistance is at $45-$45.25.
RSI has been in a nasty downtrend and is approaching August support near the 40 level. A move below this level would be a continued bearish development with risk to 30.
Existing / New Position Update
Volatility decline and broader market is building a triangle pattern which leads to lower volatility and should help give SVXY an extra boost to the upside.
If we see more congestion over the next few days in the overall stock market it will cause SVXY to increase in value further.
Netflix filling downside gap. The stock remains a leader in terms of strength and I’m not going to overstay our welcome. Expect more corrective pressure till we hit the gap to the downside and then price to reverse higher once again.
TSLA has earnings next week and I’m expecting price to remain stable for a few more sessions. If earnings revisions are in line with estimates we may hold through earnings and if the numbers are starting to move out of line with expectations – then the most likely scenario is to liquidate position and take a modest profit prior to report.
I’m keeping my eyes on the data and will update you accordingly.